had jurisdiction. The motion as made is denied.
The defendants contest jurisdiction on the ground that § 36(a) of the Investment Company Act of 1940 does not explicitly authorize a private right of action by a stockholder. In support of their motion, the defendants have not relied on applicable cases involving § 36 of this Act, but rather they emphasize decisions which have denied a right of private action by individual stockholders under other sections of the Federal Securities statutes such as, § 17(a) and 14(e) of the Securities Exchange Act of 1934, the Securities Investor Protection Act of 1970, and § 206 of the Investment Advisors Act of 1940. These sections have no application here. Accordingly, the cases which they cite do not support their contentions under the Investment Company Act of 1940. The court is empowered to act according to § 36 in such a manner as will produce compliance with the statute and correct acts of erroneous and fraudulent practice, or even involving personal misconduct as relates to any registered investment company for which such persons serve or act.
While § 36 upon which the plaintiff relies for a remedy before this court does not specifically contain a reference to a private remedy, the cases have almost unanimously sustained such a right of action. Among these cases are Brown v. Bullock, 194 F. Supp. 207, 245 (S.D.N.Y.), aff'd 294 F.2d 415, C.A. 2, 1961, which found that the "clear congressional purpose" of this Act was to protect investors and investment companies by imposing duties on directors and others; Chabot v. Empire Trust Company, 301 F.2d 458, C.A. 2, 1962; Taussig v. Wellington Fund, Inc., 187 F. Supp. 179 (D.C.Del. 1960), aff'd 313 F.2d 472, C.A. 3, 1963, cert. den. 374 U.S. 806, 83 S. Ct. 1693, 10 L. Ed. 2d 1031 (1963); Esplin v. Hirschi, 402 F.2d 94, C.A. 10, 1968, cert. den. 394 U.S. 928, 89 S. Ct. 1194, 22 L. Ed. 2d 459 (1969); Herpich v. Wallace, 430 F.2d 792, C.A. 5, 1970; and Tanzer v. Huffines, 314 F. Supp. 189 (D.C.Del. 1970).
The defendants, nevertheless, contend that even though these cases would uphold a private right of action, the Investment Company Act of 1970 amended the 1940 statute and in the amendment Congress provided an explicit remedy regarding the payment of management fees (§ 36(b)) without mentioning the substantial body of law which had provided for private remedies for other violations of § 36. They contend that by reason of the fact that Congress failed to include a private right of action in § 36(a), which is applicable in the instant case, that none exists. Again, the defendants are in error.
The recent Supreme Court case of Merrill Lynch, Pierce, Fenner and Smith, Inc. v. Curran, 456 U.S. 353, 72 L. Ed. 2d 182, 102 S. Ct. 1825 (1982) outlined the parameters of the inquiry into whether a private right of action is implicit in a federal statutory scheme, after an implied private remedy has already been recognized by the courts prior to the statutory amendment. The question is not whether Congress intended to create a private remedy as a supplement to the express enforcement provisions of the statute, but rather, whether Congress intended to preserve the pre-existing remedy. Id., 72 L. Ed. 2d at 201.
In the Merrill Lynch decision, the Court found it significant that the amendment had left intact the statutory provisions under which federal courts had previously implied a cause of action. In addition, an examination of the legislative history indicated that Congress intended to preserve the existing remedy. The Court stated that "In view of our construction of the intent of the legislature there is no need for us to 'trudge through all four of the factors when the dispositive question of legislative intent has been resolved.'" Id., 72 L. Ed. 2d at 207, quoting California v. Sierra Club, 451 U.S. 287 at 302, 68 L. Ed. 2d 101, 101 S. Ct. 1775 (1980).
After examining the legislative history of the 1970 amendments including the statement in the Senate Report that ". . . the fact that subsection (b) specifically provides for a private right of action should not be read by implication to affect subsection (a)",
I conclude that Congress was aware of the private right of action under § 36, and that the enactment of § 36(a) along with the new provisions of § 36(b) did not attempt to curtail any private remedies under this section, but rather to preserve the pre-existing implied remedies, and further, that it is equally unnecessary to "trudge through" the four factors outlined in Cort v. Ash, 422 U.S. 66, 45 L. Ed. 2d 26, 95 S. Ct. 2080 (1975).
APPOINTMENT OF A RECEIVER
The plaintiff by this action seeks the dissolution of the company because of the ulterior motives of the incumbent individuals in charge of the conduct of its business affairs, or the verbal threatening and conduct at Fort Lauderdale of the defendants to metamorphose the corporation to Rockwell's purposes and to the detriment of the preferred stockholders in spite of the defeat of Article 3 and 4 at the election, as these articles sought to do by the stockholders' amendments to the corporate constitution. The plaintiff also charges that needless expenditures of corporate money for the benefit of the defendants (other than the corporation) to Drexel has shown their ulterior motivation; that all this is proof that the preferred stockholders are in imminent danger of loss; and that therefore the corporation should be dissolved.
However, dissolution of a corporation, particularly one issuing 32 million shares of stock and an ongoing solvent corporation which is at present beneficially guided towards the investing preferred stockholders, does not, as of now, seem warranted. Such action by the court would in any event be harsh and as of now precipitous. Accordingly, this court in applying an equitable remedy seeks its guidance from the law as it must apply the facts as it finds them.
The appointment of a receiver or custodian may be appropriate when, as here, a deadlock exists in the corporate action which threatens the legal functioning of the corporation, or danger of loss, justifying the appointment of a receiver with the power to preserve its affairs for the benefit of the stockholders. Drob v. National Memorial Park, Inc., 28 Del. Ch. 254, 41 A.2d 589, 598 (1945). The law of Delaware provides that courts of equity have the inherent right even to wind up the business of a solvent, going corporation and to appoint a receiver for the protection of minority stockholders upon findings of fraud and gross mismanagement by corporate officers, which cannot otherwise be prevented. Drob, supra, at 597; The Lichens Co. v. Standard Commercial Tobacco Co., 28 Del. Ch. 220, 40 A.2d 447; Thoroughgood v. Georgetown Water Co., 9 Del. Ch. 330, 82 A. 689; Maxwell v. Enterprise Wall Paper Mfg. Co., 131 F.2d 400, C.A. 3, 1942.
Delaware law also provides the precedent for the appointment of a temporary receiver or custodian, and yet not wind up the corporate business, but to preserve the corporate assets until the corporation can function properly. In Drob, supra, at 598, the court said:
"But in any event, dissensions resulting in a deadlock among either the directors or between small groups holding equal amounts of stock, making it impossible for the time being to carry on the corporate business to the advantage of the interested parties may justify the appointment of a temporary receiver to preserve the corporate assets until it can function properly. 16 Fletch.Encyc.Corps., Per.Ed. 127, 128, 130; Sternberg v. Wolff, 56 N.J.Eq. 389, 39 A. 397; Elevator Supplies Co. v. Wylde, 106 N.J. Eq. 163, 150 A. 347; Featherstone v. Cooke, L.R. 16 Eq. 298; Trade Auxiliary Co. v. Vickers, L.R. 16 Eq. 303."